The yuan has begun the year on a defensive, and the currency is set for a prolonged bout of declines as the Chinese economy caught in deflation calls for a weaker exchange rate.

China has unveiled a host of fiscal measures in recent months, but that stimulus hasn’t quite been able to revive demand in the economy. With the property market — which accounts for a nearly a third of the economy — still beset with a supply glut and in a deep funk, there are no quick solutions.

Which is why the next flank of stimulus may come by policymakers seeking a weaker currency to revive the nation’s once-stellar export growth that seems to have fallen by the wayside. Gone are the days when China used to routinely report export growth above 20% — these days the record of shipments headed overseas has been scratchy.

China needs a weaker yuan more than ever before, but that isn’t quite what we saw in 2024, when the currency fixing from the central bank signaled a weakening of less than 2%. And the onshore yuan declined just a bit more than that.

For China to revive its exports, more declines are needed, especially with the threat of tariffs from the White House looming large. What China needs perhaps is a quick devaluation of its currency, akin to what it did in August 2015. Which is why the onshore yuan, which is now approaching 7.31 per dollar, may need to weaken further to 7.50 by the end of the year.